Question

In 2019, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half her own support.

What is Sheryl's tax liability for the year in each of the following alternative circumstances? Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates, Estates and Trusts for reference. (Leave no answer blank. Enter zero if applicable.)

rev: 02_29_2020_QC_CS-202942

b. She received $7,200 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 16 years old at year-end.

Answer 1

a. Tax liability will be zero since sheryl is earning below the taxable income and below taxable age slab.

The standard deduction for dependent children is total earned income $350 up to maximum of $12,000. Thus a child can earn upto $12,000 without paying income tax.

b. Interest income is an unearned income. Hence it will be taxable under the slab of estates and trusts, so tax liability will be:

Calculation of tax liability:

Particulars	Amount
Gross income	7,200
Standard deduction	1100
$350 plus earned income	350
Standard deduction	1100 (whichever is grater 1100 or 350)
Taxable income	6,100 (7,200 - 1100)
Gross Unearned income - $2,200	5,000 (7,200 - 2,200)
Net unearned income	5,000 (whichever is less 6,100 or 5,000)
Kiddie tax	836 [(2600*10%) + (5,000 - 2600) *24%]
Taxable income at sheryl's tax rate	1100 ( 6100 - 5000)
Sheryl's Tax rate	10%
Tax	110 (1100 * 10%)
Total Tax	946 (836 + 110)